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Thursday December 2nd, 2021
Bonds & Forex

Sri Lanka 3-month Treasuries active in secondary market as rates normalize

ECONOMYNEXT – Sri Lanka’s three month Treasury bills have started trading in the secondary market dealers said, as rates went up following after price controls were ended last month allowing rates to normalize.

The 3-month bill was quoted around 7.20/30 percent, after an auction on Wednesday, after the auction average went up 45 basis points to 7.20 percent.

Sri Lanka does not release the cut-off rate.

The 3-month rate is now 115 basis points above the 6.0 percent overnight rate giving investors a cushion against any possible 50 basis point rate hike in the near future.

“There are now investors who are comfortable holding three month bills,” a dealer said. “Earlier only banks who could not be bothered to invest overnight were buying bills.”

A 15.09.2024 bond was quoted at 9.00/20 percent flat from a day earlier and up from 8.90/10 on Tuesday.

A 01.12.2024 bond was quoted at 9.00/25 percent, flat from yesterday and up from 8.90/10 percent two days earlier.

There still no active quotes across the yield curve for bonds.

Sri Lanka’s central bank started to cut rates and inject hundreds of billions of rupees into the banking system from the first quarter 2020, crippling the bond market, triggering record balance of payments deficits.

With crippled markets the one year yield curve flatted to a ‘ramrod rate anomaly’ where perfectly compressed rate curve remains flat across time.

At the time the time the three month bill was around 7.41 percent and the 13-month had started to edge up toward 8.58 percent as tax cuts in December 2019 began to hit the credit system.

The six month yield was only 7.20 percent at the last auction and the 12-month yield 7.28 percent.

Sri Lanka’s forex markets are yet be active, amid price controls.

Countries that do not allow rates to adjust adjust to market conditions can face severe loss of confidence.

Sri Lanka’s forex markets are still not working with multiple controls.(Colombo/Oct07/2021)

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